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Difficulty: MediumAccount Statements, Privacy Protection, and Regulation S-P

A compliance officer at a registered broker-dealer is auditing the firm's policies regarding privacy protection under SEC Regulation S-P and account statement delivery under FINRA rules. Which of the following statements correctly describe these regulatory obligations? (Select ALL that apply)

  1. An initial privacy notice must be delivered to a retail customer at or before the time an ongoing customer relationship is established.Answer
  2. Account statements must be delivered at least quarterly, but must be sent monthly for any month in which trading or transaction activity occurs.Answer
  3. C
    Casual consumers who conduct an isolated wire transfer without opening an account must receive annual privacy notices for as long as their transaction records are retained.
  4. D
    A broker-dealer may satisfy Regulation S-P opt-out rules by requiring clients to draft and mail a custom physical letter as their sole opt-out mechanism.

Answer

The correct statements are that an initial privacy notice must be provided at or before establishing an ongoing customer relationship, and account statements must be delivered quarterly at minimum, but monthly when account activity occurs.
Under SEC Regulation S-P, broker-dealers must deliver an initial privacy notice to retail customers at or before establishing an ongoing customer relationship. Furthermore, FINRA rules specify that customer account statements must be sent quarterly at a minimum, but monthly for any month in which trading or cash movement occurs in the account.

Step-by-Step Solution

1
Analyze Regulation S-P privacy notice delivery requirements for customers versus consumers.
Customers with an ongoing relationship must receive an initial privacy notice at account opening and an annual notice thereafter, whereas consumers with isolated transactions do not receive annual notices.
Regulation S-P explicitly distinguishes between ongoing customer relationships and one-time consumer transactions.
2
Analyze Regulation S-P opt-out mechanism standards.
Identified that opt-out mechanisms must be convenient and reasonable (such as toll-free calls or check-box forms), making mandatory custom letter drafting non-compliant.
Imposing unnecessary hurdles to opt out violates the standard of reasonable opt-out provisions.
3
Analyze FINRA rules for customer account statement delivery frequencies.
Confirmed that inactive accounts require quarterly statements, while active months require monthly delivery.
Timely statement delivery keeps investors informed of account holdings and trade activity.

Key Concept

Regulation S-P Privacy Notices and FINRA Account Statement Delivery Rules
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Topics

Account Statements, Privacy Protection, and Regulation S-P